Enterprise Fleet Management: Fleet Financing
Leasing your fleet can improve productivity and lower costs
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A fleet of vehicles can hold the keys to trimming expenses and improving cash flow without sacrificing vehicle quality or performance. But the decision whether to own a fleet of vehicles or lease vehicles through a professional fleet management company can vary depending on business circumstances, goals and objectives. Some of the important considerations include the following:
If my firm has cash we can spend on vehicles, why would we lease and be charged an interest rate?
By acquiring vehicles through a professional fleet management company, a separate line of credit may be established for your business. This can optimize cash flow and preserve your bank line of credit or cash surplus for operations, expansion, additional personnel, investments or simply a “rainy day.” A fleet management company can help with the financial math to assess this decision, which is dependent on your situation and overall cost of capital.
In addition, while interest rates for leasing vehicles are generally competitive for various financing options, a fleet management company may allow for flexible leasing
arrangements that can lessen the amount of debt on a business’ balance sheet as compared to traditional loans.
This can reduce financial risk, improve the cost of capital and increase the value of the business.
Is leasing better than reimbursing drivers for their own vehicles?
A recent analysis for a company with 80 drivers who average 15,000 to 20,000 miles per year indicated that about $100,000 a year could be saved by switching from reimbursing drivers to providing company-owned vehicles. The calculation was based on a combination of hard and soft costs including lease terms, monthly payments,
maintenance, insurance and fuel savings generated
by having a fleet of uniformly fuel-efficient vehicles.
For example, some drivers used older cars that were not very reliable, resulting in more downtime, while others drove vehicles that were not fuel-efficient. These employee-owned vehicles also did nothing to enhance the professional image of the company they represented, which impacts potential customers and prospective employees.
How large does my fleet need to be to benefit from leasing?
Every business situation is unique and there can be many variables and considerations, including the extent to which the business is committed to managing vehicle acquisition, disposal, maintenance, invoices, insurance and vehicle registration and reporting.
Generally, outsourcing to a professional fleet management company requires a fleet size of 15 vehicles or more to improve overall operational efficiencies and effectively lower the total cost of ownership.
How can a fleet management company help us meet DOT requirements?
Registering vehicles can be a complicated and exasperating process, especially for companies whose drivers are scattered across multiple states and counties. Not only do different states have different names for regulatory agencies, but specific requirements and terminology may vary state-by-state or county-by-county for emissions, license plates, taxes and insurance. Because there may never be a uniform way to register vehicles across the nation, a knowledgeable fleet management company can help make this process go much more smoothly.
In addition, letting a firm handle the time-consuming and labor-intensive process of renewing vehicle registrations frees up drivers, relieving them from spending time standing in line at the department of motor vehicles when they could be servicing customers.
How can we improve resale and lower the total cost of ownership?
Experienced fleet managers know that achieving strong resale value begins at the time of vehicle purchase. Those who plan properly may be rewarded, not only with reductions in total fleet spend but also with as much as 20 percent retained equity at the time of sale.
Increased residual value requires ordering the right vehicles for the job, programmed maintenance, quality repairs, appropriate vehicle replacement intervals and safety-focused drivers. Cutting corners means shortchanging yourself down the road.
What are the disadvantages of holding onto older, paid-for vehicles versus replacing them?
Holding onto vehicles with high mileage can mean higher maintenance and fuel costs, frequent breakdowns and expired warranties, which may actually prove more expensive in terms of opportunity costs due to missed appointments and lost productivity.
A fleet management firm can provide a replacement strategy to replace vehicles at regular intervals to increase fleet efficiency and ensure their optimal performance and resale value.
By monitoring factors such as the time of year, mileage, vehicle type, age and maintenance history, guesswork is eliminated. A cycling program looks at future trends, current used vehicle markets, warranties, mileage and the potential wear and tear on each vehicle.
What are the advantages of a managed maintenance program?
Operating costs can also be minimized with a company-owned fleet. A managed maintenance program can monitor and ensure regular service checks, examine invoices, and arrange the most economical, timely and high-quality repairs for fleet vehicles. This program also can yield maximum warranty benefits, rebates, price breaks and other opportunities to minimize expenses.
For example, a fuel card program can automatically monitor fuel purchases and mileage for each vehicle, while giving drivers maximum access to the most convenient fueling stations.
Why should I outsource fleet management when I can do it myself?
Just as you rely on an accounting or tax professional to handle business functions such as tax planning or tax compliance, you may need a professional with automotive industry expertise to manage company vehicles. A fleet management company can be a full-service resource for ensuring that every dollar spent to buy, operate and replace vehicles over a period of time results in the best economic solution for their customers. CS
Steve Usselmann is senior vice president of Enterprise Fleet Management, STAFDA’s fleet management consultants. He can be reached at 314-512-2332 or by email at steve.usselmann@efleets.com. Enterprise Fleet Management is an affiliate of Enterprise Holdings Inc. For more information, visit www.efleets.com or call toll free 1-877-23-FLEET.
CONTRACTOR SUPPLY MAGAZINE
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